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Jury selection commences today for the trial of a former Goldman Sachs vice president, Fabrice Tourre.
The Securities and Exchange Commission alleges that Tourre, or “Fabulous Fab” as he was known, and Goldman Sachs misled investors, “about a financial-crisis era transaction that ultimately cost investors more than $1 billion when the housing market collapsed,” the Wall Street Journal reports.
JEREMY HOBSON, HOST:
From NPR and WBUR Boston, I'm Jeremy Hobson. It's HERE AND NOW.
Jury selection starts today in the trial of former Goldman Sachs trader Fabrice Tourre, also known as Fabulous Fab. That's what he called himself in emails to colleagues. He's accused of selling investments he knew would go bad, costing clients a billion dollars. Heidi Moore, Wall Street correspondent for The Guardian, joins us now to tell us about all of this. And, Heidi, remind us, first of all, exactly what Fabulous Fab is accused of doing.
HEIDI MOORE: Well, he's accused of putting together a deal for an investor named John Paulson, and you might know him as the guy who made billions of dollars on the subprime crisis. So John Paulson wanted a lot of subprime mortgages to bet on. He asked Goldman Sachs to create a kind of Frankenstein monster of mortgage securities, where you just smash together just all subprime securities, so that he could then bet against them. So he did that, but the problem is, Goldman Sachs sold that smashed-up melange of subprime securities to other banks - German banks, U.K. banks and so on - who weren't told that this security was created purely so that John Paulson could bet against it and make money on it. And, of course, those banks later needed bailouts, and they cried bloody murder.
HOBSON: And this was something that was relatively common, right? I mean, banks sort of playing both sides of a deal.
MOORE: Yeah, that was very common. Very often, what happens is banks choose, basically, who's going to be more profitable to them. And in this case, it was John Paulson, who was a pretty good customer - not the billionaire that we know now, but a good hedge fund customer who wanted to kind of try this experiment. And so Goldman said OK because they don't owe anything to the German banks and the U.K. banks on the other side. As a matter of fact, those banks are their rivals. And so they think, you know, all's fair in love and war. We're all sophisticated investors, if - Goldman argued if those other banks had done their homework, they wouldn't have lost money.
HOBSON: We don't have to provide guidance. We are market makers. I think that's what Fab said when he testified on Capitol Hill. So several emails, Heidi, are going to be entered into evidence, including one from January 2007, where Fabrice Tourre reportedly said the whole building is about to collapse any time now. The only potential survivor, the Fabulous Fab. How much is this really about him, and how much is he kind of a scapegoat here?
MOORE: Yeah. I think he's a lot - he's very much a scapegoat. And, you know, he went on in that same email to say: not so fabulous as some might think. So he is actually pretty self-deprecating, very excitable. He uses a lot of exclamation points. And what's interesting about his emails is that he knows throughout that he's, you know, sort of a foot soldier creating this disastrous product, because that's how he's going to get his bonus at the end of the year. So his self-awareness, bizarrely, that he put an email is what has doomed him to this trial. But he's not responsible for, you know, the - entirely responsible for the creation of this deal. There were many other people who worked on it.
And Goldman Sachs, actually, already settled with the SEC, paid $550 million, and neither admitted nor denied wrongdoing, which means that the SCC, apparently, doesn't consider the deal fraudulent. So if it doesn't consider the deal fraudulent, it raises the question of why Fabrice Tourre, the low man on the totem pole, is on trial for fraud.
HOBSON: And, Heidi, this is the first trial tied to the financial collapse since two Bear Stearns executives were acquitted in 2009. Why have there not been more trials?
MOORE: Yeah. This has led to the trope of too big to jail. The Department of Justice has had a 20-year low in financial crisis prosecutions. The SEC rarely brings cases like this one. The SEC is bringing the case against Fabrice Tourre. And the reason is that the banks are often just really powerful and very well-funded. And so the SEC and the DOJ are really outmatched. They can't afford the same lawyers.
HOBSON: Heidi Moore, finance editor for The Guardian. Heidi, thanks so much.
MOORE: Thank you, Jeremy. Transcript provided by NPR, Copyright NPR.
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